The way we buy and sell homes in the U.S. isn’t normal—at least not compared with the rest of the world.
The commission on a home sale here is typically around 5% to 6%, usually split between the seller’s and buyer’s agents. In most countries, the commissions are substantially smaller.
The U.S. is home to as many as three million agents. By most estimates, no other country is even a close second.
Though it is unclear how much a court decision on commissions last month will upend American real estate, if at all, the ruling opens up the possibility of forever changing how agents are paid for their work. And looking at home sales around the world offers a window into what could be in store.
One reason commissions here remain high is the use of buyer agents, said Ryan Tomasello, managing director at investment bank Keefe, Bruyette & Woods. Home sellers pay the commission—typically between 5% and 6% of a home’s selling price—which is usually split between the seller’s and buyer’s agent. Buyer agents aren’t nearly as common in other parts of the world, said Tomasello.
Lawyers for the home sellers in the case argued the current model suppresses competition by making it difficult for buyers and sellers to negotiate lower rates.
Mantill Williams, a National Association of Realtors spokesman, said commission offers are negotiable and are determined by the market and the value that real-estate agents bring to consumers.
“A comparison of rates around the world is very misleading because it often doesn’t give accurate comparisons of value and the numerous other costs consumers have to pay as part of transactions abroad, just cost,” said Williams.
Still, sellers should be emboldened to ask agents to accept a lower rate given the range of commissions worldwide, said Norm Miller, a professor at the University of San Diego who studied worldwide real-estate commissions.
Last month, a federal jury ruled that the NAR and large brokerages conspired to keep commissions high. The NAR plans to appeal the decision.
There are between 2.5 million and three million active real-estate licensees in the U.S., including individuals and firms, according to the Association of Real Estate License Law Officials. The number of active real-estate licensees roughly corresponds to the number of active real-estate agents, a spokeswoman for the organization said.
About 1.6 million of those roughly three million licenses are held by Realtors, dues-paying NAR members who abide by its code of ethics.
Pinpointing precisely how many agents there are in other countries is difficult and there isn’t a common methodology to compare agent counts across countries, said Tomasello. Many countries don’t have real-estate license laws and the profession abroad is often unregulated.
In the pre-internet days, a buyer agent’s main job was to screen and filter listings for hopeful home buyers. Today, much of that early house hunting can be done online.
So the role of the buyer agent has shifted more to providing advice and support, as well as recommendations for home inspectors, lenders and lawyers. A good buyer agent will know how to make a strong offer and may push to lower the home price.
In most countries, buyer agents are much less of a factor. In general, the services of real-estate agents are less bundled than they are in the U.S., Miller said. For instance, a seller might pay separately for assistance with staging their home or for help negotiating a sales contract.
Going forward, we might see more buyers in the U.S. eventually opting to represent themselves for most of their house hunt and use a lawyer for the closing, said Miller.
“You can hire a lawyer for less than the typical buyer commission fee, except on low-price homes,” he said.
NAR said the U.S. market operates differently than many places abroad and agents’ work in the U.S. warrants their fees.
Real-estate agents in the U.S. have higher commission rates than agents in much of the world.
With the typical commission clocking in at around 5.5%, U.S. agents are only bested by those in Japan, 6.2%, and Argentina, roughly 6%, according to a Keefe, Bruyette & Woods analysis.
Norway (1.8%) and the U.K. (1.3%) have among the lowest rates in the world.
In the U.S., many licensed real-estate agents do it as a part-time job or side hustle to earn extra income. The typical agent here handles far fewer sales than several of their counterparts across the globe.
In the U.K., which has far fewer agents, a typical one might be involved in 40 or 50 transactions annually, Miller said. In the U.S., Realtors do about 12 transactions a year, according to NAR.
One reason commissions are higher in Japan is because both the buyer and seller pay the commission to their own agent, Miller said.
Turnover also affects fees. In the U.S., we tend to buy around three or four homes in our lifetimes, but in Japan, it is often one or two, he said.
The roughly 5% to 6% commission home sellers pay is usually split between their agent and buyer’s agent.
The seller may negotiate a rate with their agent and decide how much to pay the buyer’s agent. The commission gets baked into the home price.
If buyer-broker commission rates were negotiated directly by the home buyer, they might eventually fall as agents would likely be pushed to further compete for buyers’ business, analysts and litigants said.
This article was originally published in The Wall Street Journal on November 21, 2023, and written by Veronica Dagher. PHOTO/GETTY IMAGES
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